The startup landscape in Southeast Asia (SEA) has seen successful IPOs in 2021, such as Bukalapak from Indonesia and Society Pass from Vietnam. Other companies like Traveloka, VNG, Tiki, aCommerce, and more are also considering IPOs. Mergers and acquisitions (M&A) have also been significant, like Intuit’s acquisition of TradeGecko and Aviva’s merger with SingLife, highlighting the potential for high-value exits for investors in the region’s startup scene.
It’s important to understand different types of exits beyond IPOs, as they provide liquidity events for investors and founders. Different investors may prefer different exit strategies depending on their goals. Successful exits involve the buyer taking over the business, often with key executives staying on for some time. Venture capitalists benefit from exits by returning financing to their Limited Partners (LPs) with a higher return on investment.
The article lists ten ways private company shareholders can look into for an exit, such as Mergers and Acquisitions, Acquihires, IPOs, SPACs, Direct listing/Direct public offering, Management and employee buyout, Selling stake to a partner or investor, Family succession, Liquidation, and Bankruptcy.
Mergers and Acquisitions
Mergers and acquisitions (M&A) are common exit strategies, involving one company buying another’s shares or assets, or two businesses merging to form a new entity. The M&A process can be complex and time-consuming, requiring careful deal structuring and consideration of various legal, financial, and market factors.
Acquihires
Acquihires involve a corporation purchasing a company to acquire its skilled staff. This exit strategy focuses on the founders and their team, valuing their worth to the buyer. It can provide long-term security for employees but may be a costly and challenging process.
IPO
Initial public offering (IPO) is the process of offering private company shares for sale on a stock exchange. It enables startups to raise capital, but the process is complex and requires regulatory compliance, financial reporting, and underwriting by an investment bank. IPOs are suitable for companies with strong growth and financial performance.
SPAC
Merging with a special purpose acquisition company (SPAC) is an alternative exit strategy for startups struggling with IPOs. SPACs are publicly listed entities designed to acquire private firms, simplifying the IPO process. Investors can include sponsors, founders, executives, and venture capitalists.
Direct listing/Direct public offering
Direct listings or DPOs offer a cost-effective way for companies to raise capital without creating new shares or involving underwriters. Existing shareholders convert ownership into tradable stock, but pricing and selling are subject to market demand without lock-up periods for investors.
Management and employee buyout
MEBOs involve management and employees buying out a company to consolidate ownership among a smaller group of shareholders. MBOs allow management to acquire assets and operations, while EBOs enable employees to purchase company ownership.
Selling stake to a partner or investor
This exit strategy involves selling company shares to a partner or investor, allowing for a smooth transition of ownership and operations. Negotiations may be challenging, and founders may lose control over management decisions.
Family succession
Family succession involves passing the business to a family member, ensuring continuity and long-term ownership. This strategy requires careful selection and preparation of successors to manage the business effectively.
Liquidation
Liquidation is the process of closing a business by selling assets, often used as a last resort when other exit strategies fail. It may not be lucrative for tech companies with minimal physical assets.
Bankruptcy
Bankruptcy is a legal mechanism for liquidating a business with significant debts and unprofitable operations. It can help a company rebuild credit but should be considered as a last resort after exploring alternatives like debt negotiation or restructuring.
The article discusses various exit strategies beyond IPOs and M&A, providing insights into different options for investors and founders in the startup ecosystem.
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The article was first published on November 26, 2021.
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